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USD/JPY Bounces Back Amid Defensive BoJ Talks and US GDP Data

The USD/JPY currency pair has rebounded to near 133.50 levels after a recent downtrend, supported by cautious optimism surrounding the US debt ceiling extension and the Bank of Japan’s ultra-easy monetary policy. BoJ officials continue to favor an easy money policy and have pushed back the need to alter Yield Curve Control (YCC), with former Deputy Governor Masazumi Wakatabe mentioning that he would be surprised if the BoJ changes YCC on Friday. The recent passage of the “Limit, Save, Grow Act” in the US House of Representatives, which attaches sweeping spending cuts for the next decade, has weighed on market sentiment amid fears of long and difficult discussions.

Mixed US data and equity market performance also impact the USD/JPY pair, with US Durable Goods Orders rising but Consumer Confidence easing. Additionally, the tech giants allowed Nasdaq to remain firmer, but concerns over First Republic Bank’s performance, with a 50% slump the previous day followed by another 20% share price fall on Wednesday, continue to weigh on sentiment.

Looking forward, USD/JPY traders should pay attention to risk catalysts, mainly surrounding the banks and US debt ceiling, while waiting for the US first quarter (Q1) Gross Domestic Product (GDP) data, expected to ease to 2.0% on an annualized basis versus 2.6% prior.

Technical analysis shows a convergence of the previous support line from early April and a one-week-old resistance line, around 134.15, restricting the short-term recovery of the USD/JPY pair. The downside moves, however, remain elusive beyond a one-month-old ascending trend line, close to 132.65.

CURRENT TREND: ↘️Downtrend
👍ENTRY PRICE: 133.40
✅TAKE PROFIT: 132.00
❌STOP LOSS: 134.20

Based on the fundamental and technical analysis, it is recommended to go short on USD/JPY at the current price of 133.50. The take profit target is set at 132.00, which is a key support level. The stop loss is set at 134.20, which is above the resistance level of 134.15. This provides a risk/reward ratio of 1:2. Traders should monitor the trade closely and adjust the stop loss if necessary.